Energy demand management, also known as demand side management (DSM) and supply side management, includes actions that influence the quantity or patterns of use of energy consumed by end users, such as actions targeting reduction of peak demand during periods when energy-supply systems are constrained. Ideally, energy use would be optimized by supply and demand interactions in the market. For electricity use in particular, the price paid on the market is often regulated or fixed, and in many cases does not reflect the full cost of production. Electricity use can vary dramatically on short and medium time frames, and the pricing system may not reflect the instantaneous cost as additional higher-cost (“peaking”) sources are brought on-line. In addition, the capacity or willingness of electricity consumers to adjust to prices by altering demand (elasticity of demand) may be low, particularly over short time frames. In many markets, consumers do not face real-time pricing at all, but pay rates based on average annual costs or other constructed prices.
Various market failures can rule out an ideal result for various management schemes. One is that suppliers' costs do not include all damages and risks of their activities. External costs are incurred by others directly or by damage to the environment, and are known as externalities. One approach to this problem would be to add external costs to the direct costs of the supplier as a tax (internalization of external costs). Another possibility is to intervene on the demand side by some type of rebate. In general, energy demand management activities should bring the demand and supply closer to a perceived optimum.
In general, demand for any commodity can be modified by actions of market players and government (regulation and taxation). Energy demand management implies actions that influence demand for energy. Demand side management was originally adopted in energy, where today Demand-Side Management could be, and in some cases is, applied widely to other utilities including water and gas as well.
Reducing energy demand is contrary to what both energy suppliers and governments have been achieving during most of the modern industrial history. Whereas real prices of various energy forms have been decreasing during most of the industrial era, due to economies of scale and technology, the expectation for the future is the opposite. Previously, it was not unreasonable to promote energy use as more copious and cheaper energy sources could be anticipated in the future or the supplier had installed excess capacity that would be made more profitable by increased consumption. In centrally planned economies, subsidizing energy was one of the main economic development tools. Subsidies to the energy supply industry are still common in some countries. Contrary to the historical situation, energy availability is expected to deteriorate while prices rise. Governments and other public actors, if not the energy suppliers themselves, are tending to employ energy demand measures that will increase the efficiency of energy consumption.
The current economic climate and governmental pressures to reduce energy demands and greenhouse gas emission will force manufacturers to explore energy reductions on the plant floor. Generally, industrial energy consumption is impacted by two major variables—environmental changes and production output. Environmental changes (e.g., air temperature, humidity, time of day, and so forth) on facilities' energy consumption can be measured, trended, and controlled through energy tracking software and building automation systems. Production output's impact on energy consumption is generally estimated and not measured.
Currently, there are no direct incentives on the plant floor to reduce energy consumption since it cannot be measured against production volumes, where energy costs are fixed allocations (generally, cost estimated at per month per square foot). Advances in automation can allow manufactures to make better production decisions based on energy availability, real time pricing, and emission caps but it does not go far enough. Moreover, various products and solutions provide energy and emission management from the facility or macro infrastructure (e.g., substations, switchgears, emission monitors). These tools apply production related information against the overall facility energy data to infer energy performance. Others focus energy and emission management on a building management level e.g., Data Centers, lighting, chiller and boilers.